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Facebook Could Be Heading Down Wells Fargo's Troubled Path

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The Facebook-Cambridge Analytica saga is not going away quietly, underscored by Mark Zuckerberg’s appearance last week on Capitol Hill, where he answered questions from lawmakers on consecutive days. Eventually, cable news will get bored and turn the page to something more fresh and salacious but not before we see a bunch of handwringing over privacy.

Privacy, of course, is important. Companies, for instance, have a solemn obligation to protect your social security number and credit card information when applicable. Not all privacy concerns are created equal, however, which is why no one should conflate the headline-making breaches at Equifax and Target in recent years with the latest uproar involving Facebook.

Indeed, without minimizing what Cambridge Analytica did and what Facebook allowed to happen, a firm gaining access to your social media likes, shares and groups is not remotely the same thing as essentially having your credit card stolen. What this story did do, though, was to cause many to consider how Facebook really works and the extent it will go to capture data. Because of that, a growing number of people have decided that they don’t want any part of a company that fails to ‘protect their privacy.’

This sentiment has spilled over to my world, with some clients concluding that they not only don’t want to use Facebook, they don’t want to invest in it either. This is where it gets trickier.

In a digital world, your data is out there for everyone to see. Your service provider monitors the website you visit; Netflix knows what you’re watching; Amazon knows what you’re buying; and, even more so than Facebook, Google knows what you’re searching for and where you like to go.

To further illustrate this last point, consider Google Maps. If you use it (and most of us do because it has 2 billion monthly users), and have allowed it to access your location, Google knows exactly where you’ve been and when—and can obtain that information going back years. Click here to find out yourself. While it can be an eerie experience to relive your life, day by day, through the eyes of a mapping service, no one should be surprised that much of their data is not private. After all, what’s the cliché: If the product is free, you are the product?

For those who are just coming to terms with how these companies operate, that can present conflicting emotions. Still, concerns over data privacy can’t drive investment decisions, unless, of course, you’re willing to abandon an entire sector, especially one that has been responsible for so much wealth creation in recent years. That said, Facebook has problems.

Let’s state the obvious: The hands-off approach that regulators have taken to its business practices is likely to come to an end. Whether the government can regulate such entities effectively is an open question, as evidenced by some of the exchanges Zuckerberg had with lawmakers last week. The smart money right now, however, is on the company having to make changes to its policies that allow users to enjoy a greater level of control over their data.

The fallout from such a move would be enormous, provoking doubt among advertisers already concerned that daily user growth has begun to slow, sagging to its lowest rate ever during the fourth quarter. The big question is what happens to that number going forward? Could Facebook possibly experience a loss of users in the wake of this controversy? This year’s first-quarter earnings won’t be too telling (the Cambridge Analytica story hit after it ended), but it’s not entirely unthinkable that we could see that in the second.

There are parallels here to Wells Fargo, which at one time was the envy of the consumer banking world. At its peak, it cross-sold its products better than anyone, or at least it seemed, and whipped up enormous profits.

It turns out that some of that activity was criminal. Now, Wells Fargo is scrutinized like never before, with every few weeks bringing another batch of disturbing headlines. Last week it was news the company could be facing up to $1 billion in fines and that it’s shedding financial advisors, a troublesome trend given that most banks have prioritized their wealth management divisions with lingering low interest rates continuing to temper lending and investment banking returns.

Facebook has similar risks. In gaining access to voluminous amounts of personal data and information about networks, Facebook made itself indispensable to ad buyers. However, it’s under heightened scrutiny now, which means all this could be just the tip of the iceberg. If that’s the case, its days as a billion-dollar revenue machine may be coming to an end.

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